How has COVID-19 affected SDX’s operations?
During the second half of March 2020 and into April 2020, COVID-19 containment restrictions in Morocco temporarily impacted our operations, with three customers being required to close their operations. However, in early May these same customers re-started production and as at 30 September 2020 had returned to approximately 90% of their pre-closure consumption rates. Whilst some restrictions have been eased, there remains uncertainty as to when production will return to pre-COVID-19 levels and accordingly the Company is maintaining full year guidance of 5.3-6.0 MMscf/d (gross), which was revised from 6.7-6.9 MMscf/d (gross) when the interim 2020 results were issued in August. Egyptian production remains unaffected by COVID-19 at present. The Company continues to follow applicable government guidance in each of its territories.
What is the current production guidance for 2020?
6,000 – 6,250 boe/d.
How do you plan to increase customer demand in Morocco?
The Company continues to target customers close to its owned and operated pipeline infrastructure. In particular the Kenitra Atlantic Free Zone development, in which three of the Company’s current customers are established, offers a number of opportunities with both new and existing customers.
What does the prospective resource upgrade at South Disouq mean for SDX?
Management has high-graded c.233 bcf of mean unrisked recoverable prospective resources, which are close to infrastructure, located in horizons that are either productive in South Disouq or in adjacent blocks and which have now been progressed to ready-to-drill prospects. This increase of 137 bcf from the Company’s previous estimates of c.96 bcf is primarily attributable to the identification of the Hanut prospect which the Company estimates has unrisked mean recoverable volumes of 139 bcf. SDX plans to accelerate its drilling campaign to Q2/3 2021 from late 2021/early 2022, subject to governmental approval of an extension to the South Disouq exploration area.
The accelerated campaign would consist of at least two commitment wells targeting c.165bcf in the Hanut and Mohsen prospects.
Will you increase capacity at the South Disouq CPF if these accelerated drills are successful?
This is dependent on the degree of success. As with everything the Company does, in a success case an assessment will be made as to whether it is more valuable to spend the capex to increase the CPF’s capacity and accelerate production, or to conserve capital and maintain the current production plateau for a longer period.
Will SDX’s partner choose to participate in further South Disouq activity?
The Company’s partner in the concession is currently reviewing the identified prospectivity, including Hanut and Mohsen, and will advise its decision in due course.
Is the Group considering potential M&A opportunities?
The Company remains well placed to weather the current macroeconomic uncertainties and continues to screen a number of business development opportunities; however, the current situation does make certain elements of the process more challenging.
If you do proceed with an acquisition, how will it be funded?
The Company recognises the need to consider all available options for funding any future acquisitions, and screens each potential transaction against a suite of recognised deal metrics. These metrics include whether the transaction is accretive to existing shareholders.
Will you consider a dividend, or a share buy back?
Although the Board continues to discuss capital returns and the value of a share buy back programme currently the Company is of the view that the projects within its portfolio offer better risked returns to shareholders. Should this not be the case at any point in time then the Company would naturally consider returning capital to shareholders.
How does the Company approach Environmental, Social and Governance (“ESG”) issues?
As an oil and gas exploration and production company, we recognise our responsibilities to our investors, the environment, particularly in the countries in which we operate, local communities impacted by our business, our employees, host governments and all of our other business partners. Two examples of this are:
- In Morocco, the Company’s business supports our customers in reducing emissions by burning cleaner natural gas. This saves c.60,000 tonnes of CO2 equivalent per year versus alternative heavy fuel oil; and
- At South Disouq our CPF runs on produced gas, minimising the carbon footprint of the plant.
For more detail on our approach to ESG, please refer to the ESG report on pages 33-34 of our 2019 Annual Report, available on our website.